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spk02: quality vitamins, minerals, and supplements. That's why we're such a leader, and they're not looking to trade down en masse. So what I can tell you is we haven't seen it. We haven't seen it historically, but we are monitoring it regularly and keeping a very close eye on it and seeing where this market goes in the economic environment that it's in today.
spk07: Got it.
spk02: That's a great color. The other thing I would add to that as well, just on the side, is Well, we're taking pricing, so are our competitors. So it's not just us pricing in a market in this inflationary period. Our competitors are also taking pricing, and the price gaps that you would have seen pre-pandemic are remaining relatively stable.
spk00: Okay, thanks. That's great, Tyler. And then just switching gears, could you provide us with an update on the M&A landscape today, whether you're seeing any movement on valuations or competition since we last spoke, and maybe whether you're getting any closer to doing a deal in the U.S.? ?
spk03: Well, we continue to assess opportunities. Certainly, I think multiples have come down as the public markets have come down. So do expectations of both PE and privately owned organizations. As you know, we're very fiscally disciplined and we will only transact in a way that allows us to achieve the IRR that we set out from a target perspective. So when we have news, we will certainly share it. But, yeah, multiples are certainly becoming more affordable given the current environment.
spk07: Got it. Thanks, guys.
spk06: And once again, if you'd like to ask a question, please press star 1. We'll now take a question from Sadat Khan with RBC Capital Markets.
spk05: Okay, great. Thanks and good afternoon. Just I guess a follow up. We had this discussion at the last quarterly call around working capital for this year. Looks like the year started off sort of slightly positive. What is your updated expectations on working capital for 22 given sort of where the backdrop is on inflation and some of the other things you talked about earlier?
spk03: Yeah, we expect to still spend kind of low double digits working capital for total fiscal 2022. We will continue to maintain high inventory levels while the supply chain risk exists, and we don't expect that to subside until later in 2023.
spk05: Just some of the commentary earlier around China. Is that the way you're going at this point after a few years of a push in there? You know, is it still sort of, are you still introducing new categories? Do you feel like the product offering or the mix of products you have in the market is set and that's about just more velocity and things like that? Where would you say sort of the portfolio mix or your offering in China is relative to where you want it to be?
spk03: So when we talked at the end of fiscal 2021, we talked about key priorities in China is one, take advantage of the velocity of cross-border e-commerce in China. That includes, you know, growing faster than market based on promotional awareness and incremental marketing from a Jameson perspective. But it also includes taking innovation that Mike talked about for the Canadian market and bringing that to China through the cross-border e-commerce market. It includes growing in club as one of our major club customers doubled their footprint at the end of fiscal 2021, which will certainly provide a lift of that business in 2022. as well as continuing to expand in the retail space with our market-leading registrations and our available SKUs in market. So all of those are parts of the pie. We're just managing, obviously, the environment as COVID is now taking grip in China and managing through those issues.
spk02: Yeah, and just a little bit of context on it globally, Saba. There's not a market in the world where we will say, hey, we're done, we have the portfolio we want in this category. It is a category made up of many subcategories, many SKUs. Innovation is important, but consumer needs are always changing. There's going to be a lot of opportunity coming out of our portfolio here into Canada into lots of markets we plan, and we'll never sit still on that. Being an innovation powerhouse like we talk about doesn't just mean here in Canada. It means in all the markets we're in, and we continue to expand and meet consumer needs in the markets where we're growing.
spk05: Okay, that helps. And then I guess Just more of a housekeeping question. I think in the adjustment, you have a small amount for COVID-related costs. It seems like it might be, I think, maybe overtime expenses. Can you just talk about what drove that and does that eventually phase out over the course of 2022, the overtime adjustments as restrictions come off?
spk03: Yeah, so that was right when Omicron hit at the beginning of January. We had some incremental pay as it related to keeping the absenteeism at bay and velocity and efficiencies running in our plant. That is subsequently ended. Obviously, if the environment continues to improve, you will see no more COVID costs in our P&L.
spk05: Just one last one, if I could sneak it in. It seems like there's a supply chain system implementation. That was, I think, referenced in the adjustment. Is this sort of like a multi one? Can you maybe give some timeframe on that and how, you know, is it just going to be, is it, is this kind of the, I guess the system implementation or the kind of which cycle are we at and what should we expect for the next couple of years in terms of these adjustments?
spk03: So we are going to have a few years of broad system improvements in fiscal 2022. We're focusing specifically on the supply chain aspect of our system. That will be virtually done by the end of fiscal 2022. And it's just the nature of that system that require those costs to be expensed versus capitalized. As we guided capital expenditures and system improvements through our fiscal year end, we naturally included those costs in capital. But after we're doing the analysis, it's unfortunate that those costs are going to have to go through the P&L. So we will add them back. as we do not pertain specifically to this year's results.
spk05: Okay. Would that be the delta between sort of your capex of 15 to 20 versus, I guess, 15 now?
spk07: That's correct. Thank you. Thank you.
spk06: Our next question will come from Justin Keywood with CFO GMP.
spk01: Hi. Good afternoon. Thanks for taking my question. I had a question on the consumer demographic mix recently and if there's been any change. As I understood, there was many new younger consumers that were trying Jameson for the first time earlier in the pandemic and possibly setting up for greater lifetime value. And if that dynamic is still occurring.
spk02: Thanks, Justin. I mean, we continue to see strong growth off of this new elevated baseline that we built over COVID-19. continue to see accelerated adoption of the category into consumers' lives. When COVID really hit two years ago, we saw an influx of new consumers, and what we talked about was a younger demographic was coming into our brand for the first time. Throughout the COVID period and into Q1 of this year, the growth on top of growth quarter after quarter, we continue to see these new consumers at a very high percentage en masse stay in our brand, stay in the category, and continue to expand their usage. That would include all the age demographics that entered, and we're quite confident that they're with us for the long term.
spk01: Thank you for taking my question.
spk07: Thank you.
spk06: And we'll now hear from Peter Sklar with BMO Capital Markets.
spk04: Mike, in your commentary, I think you talked about a category called beauty within. Did I hear you correctly? And what is that?
spk02: Yeah, we've talked about it over the course of the pandemic as it's really started to trend. It's beauty or beauty from within. It's really products that deal with hair, nails, and skin. You know, like collagen, for example, would be a great example of that, biotin. products that really, really work from the inside to impact things that are external, like your hair, nails, and skin. We've seen growth on that throughout. We saw growth pre-pandemic. We saw it accelerate through the pandemic. And when I was asked the question what we saw grow in Q1, that was one of the categories that continued to grow.
spk04: Okay. Next, I just wanted to go back on this discussion of potential trade-down, which you're indicating you haven't seen any yet. But just kind of thinking out loud here, let's say just inflation goes crazy and we go into a recession, you know, because the, you know, central banks are tightening and, you know, consumers really under a lot of pressure because of higher interest rates and, you know, runaway inflation. And like, do you ever worry about that? Because I think of Jameson, I think you agree as a premium brand. And have you ever thought about that? You like, you need a different discount brand to take that part of the market and to potentially, uh, You know, to defend in case there is some trade down that comes up in the future.
spk02: Yeah, so we definitely think about it. I mean, we definitely keep an eye on what's going on in the marketplace and think about, you know, what would we need to do if something were to come true that is not within our hypothesis or within our history. We do believe, though, when we look at historical data or we look at what's been going on over the last year, that we do not have a high risk of trade down. And really, there's a few reasons why. We're not a discretionary category. It's not a category that consumers typically shop on price. They typically look at value more from a quality perspective. And it's one of the reasons why, in our category, control label or private label is not really highly indexed. It's a lower share of a category than you see in more discretionary categories or in and other categories across the store. Consumers typically look at quality as value, and we're known as quality. The second thing I would say is as consumers make choices on what they're going to change in their consumption behavior in a time like this, our category is quite far down the list in terms of what they're willing to make changes on or trade down on, because they believe that with price, which is true, with price comes a lower quality, and they really want quality. So that's at play. You know, we don't look at launching a discount brand. Our brand stands for quality. It stands for a premium mainstream price for the mainstream consumer. We do always have the tool to increase promotions. We have the tool to increase our investment in the brand, to change the way we invest in the brand, to drive growth if we have to. But at this time, we don't see the need to do that. We don't see a... material risk in front of us. But as I said earlier, we monitor it regularly. We're watching it closely. And consumers always do with our brand as being an omnichannel brand, being everywhere. They also have the opportunity to change channels. They can change to a channel where maybe they get a better value per dose. They can change to a channel where maybe they can get a product for a lesser dollar amount with less doses on it if they're more concerned about cash flow. So we might see some channel shifting as we go. But as we've talked about before, We're relatively margin agnostic from a channel-to-channel perspective, and we feel pretty good about the guidance that we've given.
spk04: Okay, I understand that. And then just lastly, Chris, I believe all your labor is organized, and I'm just wondering when your major agreements come up for negotiation.
spk03: There's two facilities in Windsor that operate under a collective bargaining agreement. They come due in 2023. So we have a couple years.
spk02: And what about the one in Scarborough? The beginning of 2020. Beginning of 2024. Yeah, the 23rd.
spk07: Okay. And don't you have a facility in Scarborough? Is that closed? No, yeah, the Scarborough facility is not a unionized facility. Okay. Okay, great. Thanks. Thank you.
spk06: And we have no further questions singled at this time, so I'd like to turn the conference over to Mr. Palato for any additional or closing remarks.
spk02: Perfect. Thank you, Sarah, and thank you to everyone for joining tonight. We appreciate your attendance. We appreciate your ongoing support, and have a great evening. We'll talk to you all soon. Bye-bye.
spk06: And that does conclude today's conference. Once again, thanks, everyone, for joining us. You may now disconnect.
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